Should You Include Accounting in Your Living Trust

Here is something you need to be aware of and guard against. If you lose capacity or resign as acting Trustee of your Living Trust, your Successor Trustee does not have to provide an accounting to your Trust beneficiaries during your lifetime. Until the recent California Supreme Court case of Estate of Giraldin (55 California 4 th 1058), your Successor Trustee would never be required to account to your beneficiaries during the time he/she acted as Trustee until your death.

Why is this an issue? Because your beneficiaries have no way of knowing how your Trust funds are being utilized during this time period and no legal protection of their potential inheritance from usurpation or the negligence of the Successor Trustee.

Let’s look at a hypothetical situation:

Jan, as the Surviving Spouse., has a Living Trust that names her son, Jim, as the Successor Trustee should she be unable to act. She has two other children, Jodi and Joe. Jan is 75 and encountering some suggestion of forgetfulness and decides to resign the responsibility. Jim is also designated as Jan’s Agent in her Financial Power of Attorney.

Jim acts in these capacities until Jan’s death 10 years later at age 85. For these 10 years, Jim has full control of the Living Trust assets and Jan’s retirement plans. He takes a loan on the house; he sells Jan’s investment stock; he withdraws money from her IRA; he moves bank accounts; he moves into the home where Jan lives and occupies a rental property. Jodi and Joe wish to know where the money is going and if it is being utilized for Jan’s benefit. They would like an accounting from their brother, Jim. They can ask for one, even through an attorney, but as long as they are
not current beneficiaries, they have no right to an accounting under California law.
Jan is the only current beneficiary and only she has a right to an accounting. But Jan now has dementia and could only request one through her Agent in her Financial Power of Attorney. But who is her Agent? Jim. Dead end. The other children have no relief.

We see this time and again in our office. By the time the Surviving Spouse is deceased, funds have disappeared without any accounting or explanation by the Successor Trustee.

Accounting in Your Living Trust san diegoSo, what can you do about it in your Living Trust and Durable Powers of Attorney (DPA)? You should incorporate Accounting Requirement Provisions that mandate whoever is acting as your Successor Trustee, to account to all beneficiaries on request. This is especially true if a son or daughter is acting as the Trustee and there is sibling rivalry or siblings who reside out of state.

The provisions I now implement into our Family/Living Trusts and DPAs, require that the fiduciaryaccount within 30 days upon the request of a beneficiaryeven though the Surviving Spouse is still living. This provides all of the beneficiaries some relief if the Successor Trustee begins to neglect to respond to inquiries by the beneficiaries or to matters that look suspicious.

Many parents do not understand, or refuse to accept the fact that children take on different views of control and family decision-making when parents are no longer involved. There may be jealousies, frustrations and problems that have not surfaced when the parents were active in the family. Now, when one child takes over the Trusteeship and begins to “conduct the orchestra”, issues surface. It is at this time accountability is needed the most.

This situation is also true should you retain a Private Fiduciary to act as Successor Trustee. They, definitely, should be made to account to your beneficiaries. Again, if you have no Trust provision to this effect, there is no way to force an accounting for your remainder beneficiaries.

As part of an update to your Living Trust and Estate Plan, call the office and request a consultation with me.

Jack E. Stephens